DOJ Announces New Whistleblower Program for Corporate Crime

Justice Department to Pay Whistleblowers Who Tip on Corporate Crime

The Justice Department plans to pay whistleblowers who tell prosecutors about corporate crime, adding a new incentive to attract more tipsters to aid the government.

The department will begin the effort as a pilot program aimed at cases where whistleblowers aren’t already eligible for payments from other government programs, Deputy Attorney General Lisa Monaco told a legal conference on Thursday in San Francisco.

Tipsters would be paid out of money that defendants forfeit when they settle civil claims or are sentenced after a guilty plea or conviction. The department will develop rules for the program over the next 90 days and plans to launch it later this year, according to Monaco’s remarks to the American Bar Association.

Enforcers Place Emphasis on Punishing Repeat Corporate Offenders

Gurbir Grewal, director of the Securities and Exchange Commission’s enforcement division, said striking at corporate recidivism is crucial to regaining the trust that the public once had in financial and other institutions. The SEC does realize that large registrants and large banks are going to have potentially numerous technical violations and compliance issues because of their sheer size, he added, in a panel discussion at the conference.

“We’re not just looking at the technical violations, we’re looking at the nature of all violations,” said Grewal.

Grewal noted that if the SEC sees a series of violations over time, it will seek to impose higher penalties for deterrence. The agency is also putting a greater emphasis on seeking admission and resolutions, and would also go after individuals who are determined to be involved with misconduct, including officers and executives. Two-thirds of its resolutions involve individual wrongdoers, and the goal, he added, is to keep so-called bad actors out of the industry.

SEC Charges Skechers with Making Undisclosed Payments to Executives’ Family Members

The Securities and Exchange Commission today announced that Skechers U.S.A. Inc., a footwear company based in California, agreed to settle charges for failing to disclose payments for the benefit of its executives and their immediate family members. Skechers agreed to pay a $1.25 million civil penalty to settle the SEC’s charges.

According to the SEC’s order, from 2019 through 2022, Skechers did not comply with related person transaction disclosure requirements when it failed to disclose its employment of two relatives of its executives and did not disclose a consulting relationship involving a person who shared a household with one of its executives. Furthermore, according to the SEC’s order, for multiple years, Skechers failed to disclose that two of its executives owed more than $120,000 to the company for personal expenses that had been paid for by Skechers but not yet reimbursed by the executives.

SEC ‘Neither-Understands/Nor-Cares’ About Realities of Settlement Gag Rule

The SEC’s view assumes—wrongly—that it is always right and that its allegations are always supported by proof sufficient to prevail in court. Even if the agency believes those notions, history has made clear that the SEC is not always right and that it has failed to present proof sufficient to support its allegations in court (the limited space of this article does not permit a detailed summary of the many examples of both). Relying on this skewed premise, the agency fails to acknowledge that the defendant also foregoes the “right to litigate” when entering a settlement—in addition to waiving his or her First Amendment right to criticize the agency’s allegations and investigation.

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The reality is that settlement of an SEC enforcement action is not merely an act of benevolent sacrifice by an agency that has an overinflated view of its ability to prove cases in court. The SEC does not necessarily wield tremendous leverage in settlement negotiations over regulated entities because of the strength of its proof or trial prowess. The leverage springs from the fact that most entities often need to settle and move on even when they believe the SEC’s position is unsupported and a challenge might prevail in court. Frequently, these entities make the business decision that it is not worth spending company money to litigate; it is ultimately better for the entity and its shareholders to settle the dispute and move past it.

New NCLA Lawsuit Exposes Public Company Accounting Oversight Board’s Star Chamber Proceedings

Today, the New Civil Liberties Alliance filed a Complaint in the U.S. District Court for the Middle District of Tennessee challenging the Public Company Accounting Oversight Board’s (PCAOB) secret, unaccountable, and inherently biased prosecutorial processes. PCAOB has investigated and brought a secret prosecution aiming to brand NCLA’s client a wrongdoer, strip away his livelihood and impose severe financial penalties against him—without a jury trial, due process of law, an impartial adjudicator, or any constitutional accountability. NCLA’s client, John Doe (a pseudonym used to protect his anonymity), asks the Court to stop these disciplinary proceedings and declare them unconstitutional….

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PCAOB officials lack constitutional authority to prosecute John Doe. The Board’s core investigative, prosecutorial, and pseudo-judicial activity is performed and superintended by private citizens, none of whom is constitutionally appointed as an officer of the United States nor is subject to real-time direction and supervision by any presidentially appointed and Senate-confirmed government officer. PCAOB hearing officers are inferior constitutional officers who have not been lawfully appointed under the Appointments Clause of the Constitution, and they are unconstitutionally shielded by multiple layers of protection from removal by the President.

Shapeshifting Justice: The SEC’s Weakest Case Yet

The settlement is a curious case, raising more questions than it answers — and not just because two of the five SEC Commissioners, Hester Peirce and Mark Uyeda, wrote a scathing rebuke of the outcome. Namely the settlement fails to state whether the way ShapeShift currently operates is legal, and forced a no longer operational business to register as a “dealer” (i.e. “any person engaged in the business of buying and selling securities”).

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This is par for the course for the SEC under Chairman Gary Gensler, who has taken the view that nearly all cryptocurrencies are securities and therefore fall under its purview. Not only was the agency unspecific about which assets ShapeShift illegally listed, but it failed to explain its reasoning. “We respectfully request that the Commission show its work,” Peirce and Uyeda said.